Putin Won the Oil War


It seems that Russia has emphatically ended the oil epic that unfolded a month ago. The iron endurance of Moscow and the impending collapse of Saudi Arabia and the US oil industries forced Washington to start direct negotiations with the Kremlin.

The representative of the US oil regulator said that he discussed with the head of the Ministry of Energy of the Russian Federation Novak the reduction of production by 10 million barrels per day.

This is the news that broke on the evening of April 2nd. What does it mean?

To begin with, it is necessary to understand what OPEC+ represented. In 2016, Russia and Saudi Arabia, as well as a number of other smaller states, agreed to cut oil production. The agreement was constantly extended, and by 2020 the total volume of cuts reached 2.5 million barrels per day.

However, this was not used by Russia and Saudi Arabia, but by the United States, which is not a member of OPEC+. As a result, Trump dramatically increased production. While America produced 8.5 million barrels of oil in 2016, it has now reached a volume of 13 million barrels.

In early March, Saudi Arabia proposed that Russia reduce production by 1.5 million barrels again. This meant that the United States would once again take advantage of this situation and, in turn, certainly increase production further. This was evidenced by the growth of active drilling rigs, which took place in the United States on a permanent basis.

However, oil consumption in Europe and China has dealt a double blow to oil producers, including, of course, Russia. But, unlike Saudi Arabia, we have reserves that would allow us to live painlessly for several years. And, unlike the United States, we have low production costs.

Accordingly, Saudi Arabia as a state was threatened with ruin, and the US oil industry was threatened with collapse. The loss of hundreds of thousands of jobs in strategically important states (primarily Texas) on the eve of the presidential election meant a possible defeat.

Russia waited and made it clear that it would cut production only if ALL other states, including the United States, did the same. And then America blinked. The other day, Putin held talks with Trump, and today the relevant ministries have been working on the issue.

Trump agreed with Saudi Arabia without problems that the Arabs would cut production. On this news alone, Brent rose from $25 to $30. Negotiations between the United States and Russia have now started.

I think that the parties will work out an agreement to reduce production by 10 million, which was announced.

This could mean one thing. Russia won a complete victory, forcing a reduction not only in the Gulf, but also in America, which had previously only exploited the OPEC+ agreements.

If this happens, oil should rebound to $40 per barrel in April.

However, the main outcome is not even that. $40-45 is the price that suits Russia. But under it, Saudi Arabia will continue to burn its reserves, albeit at a lower rate, and some of the US shale will still cease to exist, as the cost of shale oil, depending on the field, is between $30 and $50. Thus, Russia comes out a complete winner.

Therefore, we are expecting an OPEC+ meeting in the near future that will be attended by the Americans for the first time. History develops in a very interesting way, and right before our eyes.

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